It is an important strategic deal for the Saputo family, which sees Australia as the perfect platform to its expand its production bases in the United States and Argentina.

The industry desperately needs consolidation but if Saputo is successful it will add a new player into the mix and give Bega chairman
Barry Irvin
a serious headache. A takeover would give his company the scale needed to break onto the world stage.

As well as fending off two potential rival bidders who hold significant stakes in Warrnambool, Saputo needs to get its offer past the Foreign Investment Review Board and possibly deal with a hostile reception from the Nationals. The key is getting the suppliers onside and Saputo is keen to show it is a good corporate citizen that will look after the interests of dairy farmers, and expand and invest in the business. The company is relatively unknown in Australia so dairy farmers will be suspicious.

Saputo plans to keep the existing management team and is promising to invest in its operations that will benefit suppliers, because demand for milk will increase. It is also keen to talk up its background as a family-run company in which milk is the lifeblood, rather than a faceless conglomerate swooping in to take control. The Saputo family, including aunts, uncles and cousins, owns 55 to 58 per cent of the company. One of the world’s top 10 dairy processors, with 12,000 employees, it has made 22 acquisitions worth $US4.2 billion ($4.5 billion) since 1997.

It has a clean balance sheet and the firepower to do more deals here if assets became available. It does not have a history of doing hostile deals which is why it has not pounced on Warrnambool earlier. It is unclear whether Saputo’s offer will be the knock-out bid to send Bega packing but it is a healthy premium to the rival suitor’s latest offer. The last thing Bega wants is for a powerful foreign player to enter the market and the synergy benefits in acquiring Warrnambool are hugely attractive. Analysts believe it may need to raise equity if it wants to match Saputo’s bid.

Still, Bega owns 18 per cent of Warrnambool and Murray Goulburn has 17 per cent, which could prove problematic if they refuse to sell out. Warrnambool appears to have changed its tune on the benefit of foreign investment in the Australian dairy industry. Chief executive David Lord says investments by companies such as Kraft, Nestle and Fonterra have been the foundations for the industry as it is today.